Combat Fraudulent Activities With KYC Regulations

Combat Fraudulent Activities With KYC Regulations

The advancement in technology automated business operations, but also made them susceptible to various criminal and fraudulent activities. Scammers are continually revising their methodologies to dodge verification solutions and exploit different sectors for their illicit means.  Money laundering, smuggling, terrorizing, data breaches, identity thefts, and many other criminal activities are increasing dramatically. Considering the current scenario, regulatory bodies have devised AML and KYC regulations to keep fraudsters at bay.

KYC is the process of validating an individual to check whether they are legitimate or a threat to the company. Know your customer is a major part of the Client Due Diligence (short for CDD) that helps firms to combat fraud as well as financial crimes. 

What is KYC Compliance?

All the financial sectors are mandated by the regulatory authorities to run  KYC checks before they onboard any client. While onboarding new clients, for example, to open up their bank accounts, KYC verification is done to fulfill KYC Compliance. If the verification shows negative results about a client, the bank has the authority to refuse their request for account opening. Thus, KYC regulations have a great role in this continuously changing financial landscape to tackle terrorism funding and money laundering activities.  As the world has gone digital, manual KYC processes are not considered a good option. This is where digital KYC solutions came to the rescue. They help companies meet KYC compliance in a better and more effective way. 

Components of KYC Process

Based on the risk associated with an individual, there are three types of KYC verification or due diligence process. For example, an individual who is politically exposed or appears on any of the wanted or sanction lists requires comprehensive monitoring as compared to those who have a normal account with few transactions. 

  • Simplified Customer Due Diligence-  CDD is performed while clients are onboarded to access the risk associated with them. The process does do not need a comprehensive identification as at this stage clients are not grouped as high or low-risk profiles.  
  • Standard Due Diligence- It is performed on low or medium-risk users such as famous and public authorities. Each country has its laws that when an SDD should be enacted. 
  • Enhanced Due Diligence- Those clients who are considered as high risk undergo enhanced due diligence to check their involvement in financial crimes such as money laundering and terrorism funding. The UBOs of the company are identified along with their source of wealth and screened against any wanted or PEPs list to avoid financial crimes. 

Due diligence is indeed a significant step to screen clients and keep the firms safe from money laundered and other bad actors. 

Industries Using KYC Solutions

Online KYC checks help firms avoid fraud and prevent them from paying hefty fines by staying compliant with the global KYC regulations. Moreover, it provides clients with a greater experience, builds a positive brand image, and takes the firm to greater heights. It helps banks avoid money laundering, e-commerce to prevent chargebacks, gaming sector to avoid minors from using age-exclusive services and products. Moreover, it helps the travel industry identify culprits who want to escape the country for their illicit means. 

AML and KYC Checklist

  • The user’s complete legal name
  • Digital picture of the user that should be cross-matched with the Identity document
  • Scanned identity documents like passports, ID cards, and other documents 
  •  Bank statements or utility bills that can be used as proof of address.
  • Other identity checks, including ultimate beneficial owners (if needed).
  • Checking for money laundering activity against worldwide watch lists like PEPs, sanctions, and other watch lists

Final Thoughts

Simple KYC is turning into e-KYC, as an increasing number of organizations shift to an online world. To eliminate any hazards caused by fraudulent identities, financial firms and other businesses must identify and validate their consumers. Companies find it difficult to perform due diligence when the consumers lack real identification or if they are not authorized.

The reason why many firms are turning to e-KYC is for more convenient onboarding and, as a result, more profitable clients. As the number of online transactions grows due to the growing popularity of online companies, it is more important than ever to ensure the legitimacy of online customers. This is where e-KYC kicks in; it enables firms to validate a person’s identification using digital verification procedures.

KYC is a legal necessity for financial firms to verify a user’s identity and determine risk factors. Money laundering, identity theft, terrorism financing, and other crimes can all be avoided through KYC measures. Noncompliance with KYC regulations could lead the firms to heavy fines.

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Daniel Radcliffe

About the Author: Daniel Radcliffe

As a marketing strategist and dedicated writer for Business Wave, Daniel Radcliffe devotes his skills to researching, developing and positioning content related to some of today’s most cutting-edge technologies. He draws on nearly a decade of marketing, education and technical writing experience to distill complex topics into highly practical and valuable resources for today’s IT leaders.

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